The ASX stock Wesfarmers Ltd (ASX: WES) is a really attractive business for a number of reasons, which I'll get into in a moment. I think it's the type of ASX share that investors could buy and hold forever.
For starters, it has already demonstrated impressive longevity. According to Wesfarmers, its history can be traced back to 1914, making it more than a century old.
But, there's a lot more to this company than being old, the future is much more important of course. Let's get into why I think it's a practically perfect ASX stock.
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Diversified with flexibility
Wesfarmers owns a number of different businesses, which all meaningfully contribute to the overall business.
Its businesses include Bunnings, Kmart, Target, Officeworks, Priceline, other healthcare businesses, a chemicals, energy and fertiliser segment called WesCEF and an industrial and safety division.
The company is already diversified. I like that it also has the flexibility to continue to invest in (and divest) businesses to change the portfolio. Its healthcare businesses are a relatively new addition.
It's not stuck being a bank or a supermarket business. Rather, it can invest in whatever industry it sees opportunities, which should help future-proof the business and allow an investor to hold for life.
Strong and financially impressive businesses
I wouldn't want to own a mediocre investment forever. Thankfully, Wesfarmers is a very impressive ASX stock that makes strong returns on the money invested within the business.
I'd say Bunnings, Kmart and Officeworks are category leaders of their respective areas of the retail space.
But, more importantly, those businesses are generating a very pleasing return on capital (ROC). In the FY25 half-year result, Bunnings Group generated a ROC of 71.5% (up 5.7% year over year) and Kmart Group made a ROC of 65.9% (up 7.1% year over year).
The Officeworks ROC was 18.3%, which isn't as high as the other two businesses, but it's still a good return.
The high ROC says to me that those are quality businesses and additional money invested in those businesses could make a good return, helping increase profit and the underlying value of the business.
Good passive dividend income
Wesfarmers is committed to returning capital to shareholders. This includes paying a dividend.
The company has been growing its annual dividend each year for the last few years. I think it's good for investors who are seeking income.
Wesfarmers grew its FY25 interim dividend by 4.4% to 95 cents per share. According to Commsec, it could pay an annual dividend per share of $1.98 in FY25 and $2.36 in FY27, which would translate into a grossed-up dividend yields of 3.8% and 4.6% respectively, including franking credits.
Foolish takeaway
Overall, I think it's an excellent business that would fit into most investor portfolios.
One thing that isn't quite as appealing as it used to be is the valuation because of how strongly the Wesfarmers share price has performed in the last two years (it has risen approximately 40%). However, I'd say it's still worthwhile paying a fair price for a wonderful ASX stock, like Wesfarmers.
